Sweet secrets - Daily Nation

Jaswant Rai, his businesses, political ties and the shocking case of State capture

Sunday July 1 2018

 Jaswant Singh Rai

The chairman of West Kenya Sugar, Jaswant Singh Rai (second left), and Managing Director Tevjeer Singh Rai (left) when they appeared before the Parliamentary committee probing contraband sugar. PHOTO | FILE | NATION MEDIA GROUP 

By EDWIN OKOTH
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On the early morning of October 14, 2014, Industrialisation Cabinet Secretary Adan Mohamed was sitting in his office, clearing his in-tray. He was in a very foul mood this particular day.

The minister, who had barely lasted two years in office, was staring at a bitterly worded resignation letter from two receiver managers he had tasked to find a buyer for the troubled Webuye-based Pan African Paper Mills.

Behind Mr Adan’s fury was friction emanating from government efforts to force the sale of the mill to a well-connected business magnate.

After a series of hostile Cabinet memos fuelled by the billionaire businessman’s lobby machinery to edge out other bidders for the paper mill, the two receiver managers had decided to call it quits, citing heavy interference by the government keen to see the businessman win the bid.

Mr Ian Small and Mr Kieran Day, who were under huge pressure to sell the firm for a song to T.S. Rai Limited, had sought to commit the government to be part of the sale agreement.

They were worried that after the government lobbied heavily for T.S. Rai Limited to buy the firm at Sh900 million, which was a Sh200 million downward revision from their earlier bid and below the highest bidder, Juja Pulp and Paper Mill Limited, the State was keen not to be committed in the sale agreement as a party.

HIGHER BIDDER

This would effectively leave the receiver managers’ neck on the noose for handing out a public entity for a song when there was a higher bidder with less conditions.

Five banks and other lenders, including the International Finance Corporation, were not going to take it lightly.

T.S. Rai Limited had played a crude takeover game; its first bid was the lowest at Sh400 million, but when the Juja company quoted Sh1 billion, Rai surpassed the bid by quoting Sh1.1 billion. When the deal swung in its favour, the company revised the offer downwards to Sh900 million, citing duty changes.

As the shenanigans continued, CS Mohamed made it clear to the receivers that he would be involved in everything else except signing the sale agreement, a move that pushed the receiver managers to jump, terming the sale a “fatally flawed process.”

“The GoK has preferred the bidder over the other and has had several negotiations with regard to the sale to one of the bidders. Moreover, we cannot be certain at this time that the offer currently being pursued is in the best interest of the secured creditors and the company. We regret that we can no longer continue to act in this matter as we cannot effectively discharge our duties with the level of professional conduct we would expect,” Mr Small wrote to Treasury, leaving a lien on securities and title documents of the company to cover their costs over the six years spent at the Webuye-based paper mill.

INCOMPETENT

In his reply to the receivers two weeks later, Mr Mohamed fell short of calling the managers incompetent, terming their action “a sideshow” and asking them to hand over as soon as possible.

“Now that you have resigned, further correspondence on this issue will not be useful. Any assets you hold should be surrendered to the new receivers as soon as they are appointed,” an angry Mr Mohamed wrote.

T.S. Rai Limited had loaded its bid with a raft of conditions, including an environmental licence to cushion them against hefty compliance to get a timber licence; pulp wood and fuel wood, and increased duty tariffs on paper products to secure its operations from competition. He got it all.

Nothing much was heard of the paper mill which President Uhuru Kenyatta opened in December 2016 until recently when a cargo of raw sugar was found in its stores.

Welcome to the world of Jaswant Rai, the man at the centre of the raging controversy over sugar importation that is threatening to tear apart the Jubilee coalition.

Rai, the owner of a string of multi-billion-shilling businesses ranging from wood manufacturing, sugar milling to cooking oil and soap manufacturing, is an old hand in the game of business competition, state manipulation, arm twisting, muscle flexing, litigation and all other tricks that enable shrewd businessmen to thrive and stay ahead of the game.

MANIPULATION

The man well understands that his business must work in tandem with all the three arms of government to achieve the desired results. From the Executive to the Judiciary, to politicians and even the media, the man has clearly mastered the art of manipulation and survival.

Factor this. When the ongoing sugar controversy first broke, none other than Boni Khalwale, the self-styled mtetezi wa wanyonge (defender of the weak), sprang into action in support of Rai’s West Kenya, the sugar company that shipped the largest cargo of raw sugar from Brazil.

The former Kakamega Senator, who led a noisy demonstration in Kakamega in support of the firm, was also furious when Lugari MP Ayub Savula painted Mr Rai as the biggest baron in the sugar game during a live TV debate.

Meanwhile, in the city, almost all the leading TV stations were falling over themselves hosting the soft-spoken billionaire to give “his side of the story”.

It was a clever narrative spin aimed at painting Sony Sugar Company’s 50,000 metric tonnes as the elephant in the room and overlooking Rai’s 189,000 tonnes imported during the duty free window.

In his defence, Rai cut a Mr Clean image, more concerned about the health of Kenyans than the allure to make a kill.

WHISTLE-BLOWER

He also posed as a whistle-blower, revealing how the Awendo-based Sony Sugar shipped millions of tonnes of sugar and sold it to unsuspecting Kenyans without subjecting it to re-processing to make it fit for human consumption.

Rai, who imported 189,000 metric tonnes, said he is one of the few importers of bulk brown sugar who processed the commodity as directed by Kebs.

He said that a ship by the name Illiana transported 38,000 metric tonnes while another vessel christened The Holly brought in 50,767 metric tonnes belonging to Sony Sugar.

The third ship by the name King Coffee brought in 40,000 metric tonnes of bulk brown sugar for Commodity House and Stunt Wave companies.

 “The majority of sugar was bulk brown sugar. It was a requirement by Kebs that it be processed before being released to the market. Kebs said they be bagged at the point of entry before being transported,” Rai told the joint parliamentary committee investigating the contraband sugar.

 “I spent Sh1.4 billion to process the sugar. If I were greedy, I would have sold like the others and save on transport and processing. Some of them told me I was stupid to transport sugar all the way to western Kenya to process instead of selling in Mombasa,” said Mr Rai.

CLOSE FRIEND

The Judiciary and the Executive have always been well taken care of by Rai’s lobby arteries that spread far and wide. Indeed, where top political leaders of the various coalitions shaping Kenya’s politics have failed to agree, Rai has often become a point of convergence. A cement for their interests.

In January last year, Rai’s son Tajveer married the daughter of another sugar oligarch, Mr Ragbirr Singh – popularly known as Birre. The lavish gold-themed wedding ceremony in the city had an exotic list of invited guests, largely from Rai’s business network who were pleasantly surprised when Deputy President William Ruto spent the entire day at the event. He was not alone, his family and Majority Leader Aden Duale attended, too.

The DP is not the only top political family he associates with, Mr Rai’s Raiply has had deep networks with the First Family’s Timsales and he is said to be a close friend of Mr Muhoho Kenyatta, another frequenter to his private functions, according to those close to him.

Mr Rai is not your ordinary tendepreneuer who pops out when the government announces a mega project or keeps shuttling between government offices to push for tenders; he has deep roots weaved around powerful political families; granting him his commercial wishes. His has a long-ranger approach, seeing from far and angling appropriately with a powerful lobby machinery that gets him what he wants.

PRIVATE FUNCTIONS

He dines with the powers that be and humbles them down in his private functions such as weddings, shuttles them on holiday trips and wins their hearts in a slow but sure capture before pushing through his long and strategic business favours, which leaves any competitor reeling in trouble if not out of business.

DN body text: The billionaire’s reservoir of connected and powerful leaders flows freely from the days of former President Daniel arap Moi to the current Jubilee regime and across the border into Uganda where he runs the second largest sugar mill, Kanyara Sugar Works.

He also owns Mufumbira Paper Mills in Tanzania, which he bought in 2002 during a privatisation transaction making him the only paper manufacturer in the region where he is said to be exercising his lobby as far as the regional legislative assembly.

His characteristic sleek suits are tailored by England’s most-dressed man: Ozwald Boateng. Uganda’s President Yoweri Museveni and a soft-spoken Kenyan Principal Secretary who was retained in Uhuru’s second Cabinet is also said to be a client at the British-born Ghanaian’s shop, where a suit can be anything near Sh500,000 – the cheapest, a shirt at Sh54,000 and a tie at Sh20,000.

Boateng is the man behind the wardrobes of famous film stars, including Paul Bettany and David Thewlis in Paul McGuigan’s cult movie, Gangster No. 1 as well as Stanford Blatch, one of the key male characters on the hit show, Sex and The City.

BUDGET PROPOSALS

Mr Rai is Kenya’s version of the Guptas who completely captured South Africa’s political families, leading to the fall of Jacob Zuma in February this year.

Mr Rai’s powerful business skullduggery is said to be at the heart of several policies, including those announced by the government in the Budget proposals made last month, leaving some policy decisions at the behest of his powerful lobby machine.

Treasury Cabinet Secretary Henry Rotich, whose controversial Gazette notice opened the floodgates for sugar imports last year, had three policy pronouncements fitting Mr Rai in his June budget speech.

Two of them came in a row with one paragraph flowing into the other to show how well oiled Mr Rai’s lobby machine was rolling. The move has caused disquiet among his competitors, according to manufacturers who spoke to the Sunday Nation on condition of anonymity.

Apart from introducing duty on imported boards and plywood, which critics find counterproductive as Kenya seeks to protect its trees from within, the Budget also proposed to make any imported vegetable oil more expensive to shield local manufacturers.

CHEAP VEGETABLE OILS

“To protect our local manufacturers from imported cheap vegetable oils, I have introduced a specific rate of USD 500/MT of 35 per cent whichever is higher,” the Treasury boss announced, a favourable move for Rai’s Nakuru-based Menengai Oil Refineries where some of the contraband sugar crackdown centred in the past weeks. Another rise on duty on paper and paper board products from 25 per cent to 35 per cent is said to have been long negotiated by Mr Rai during his semi-hostile takeover of the defunct Pan Paper Mill in 2014.

His fight back strategy can be furious, like the current sugar saga, which is said to have been sparked by his realisation that some traders were going to play dirty on him in the murky world of Kenya’s sugar business.

According to reliable sources, his 189,000 tonnes sugar import during the duty-free window, which he maintains was meant to be refined, started experiencing challenges after he shipped them in and ran into logistic headache, including a handling mess that ended up contaminating his billions worth of sweetener. Some were reportedly swept away by floodwater in September as they spilled out in a badly covered warehouse.

Sunday Nation has seen a video of the sugar being handled at the open ground in Kibarani in Mombasa where clinker and coal had been kept as caterpillars scooped the commodity like murram into trucks as the commodity was being distributed to various warehouses.

HEAP OF COAL

The parliamentary team probing the saga was equally alarmed by the proximity of the warehouse to a dump site and a heap of coal. This is said to have been the genesis of his trouble.

Although he says he was meant to refine the commodity in Kakamega, industry experts say the businessman, who only has cane milling plants, would neither have the capacity to act on such a huge consignment in the first place nor would take the heavily capital intensive process to refine the raw sugar. He has been on record lamenting how expensive transportation of the commodity to western Kenya was.

Insiders also say his customers, including those nabbed during the Eastleigh raid who claim to have bought the sugar from West Kenya, foresaw a glut when the billionaire started packaging direct for the market, a move that triggered them to employ the same tactics using local packages to spread the sugar into the market tainting the pool. The move angered Mr Rai, sparking the ongoing crackdown.

The jury is still out whether the fightback and his story spin to play victim and use the SONY shield has backfired since he has been left fighting to save his brand after tests on some of the impounded sugar freed the fabric on his tightly kept world of business, leaving him badly exposed.

TRADERS IN TROUBLE

His denial of any involvement with the traders in trouble, including the Eastleigh based Ahmed Sheikh Mohamed of Diamond Wholesalers, has further complicated matters.

In his characteristic head gear and soft speech, the Asian billionaire has been keen to play down the ugly underbelly on his market capture strategy that runs deeper than just sugar business in Kenya.

He has a sugar milling factory or at least a weighbridge to tap sugarcane strategically placed near all the struggling government millers. With a stiff competition on their doorsteps and hungry farmers who have not been paid for months, the mills went from the frying pan into the fire.

The January lavish wedding had an interesting sugar capture angle. The Kisumu-based Birre who owns Kibos Sugar, that has recently invested in a sugar refinery, is also a powerful player in the business said to be behind a joint push to have the state millers privatised.

Industry grapevine has it that while Mr Rai is targeting to purchase Mumias Sugar in which the government has pumped billions of public funds in trying to revive, Mr Birre is targeting Chemilil, Muhoroni and the assets of the defunct Miwani. This will effectively hand over the sugar sector to the two families.

KENYA SUGAR BOARD

Mr Rai, who muscled licences from the defunct Kenya Sugar Board in readiness for the complete chokehold, uses his connection muscles on every threat from any State department. The Mombasa County health department and the Kenya Bureau of Standards officials are also said to have been quickly silenced when they questioned the poor handling of the sugar at the port last year.

Butali Sugar Mill is a perfect case study on what those who attempt to challenge the billionaire’s ventures would face. The miller was dragged into a lengthy court battle running between various courts as it struggled to get a milling licence renewed in 2014.

After three years of building operation muscles following a nasty battle to stop its initial licence in 2011, Butali Sugar was back in court in 2014 this time as an interested party since West Kenya had now resorted to questioning whether the newly established Agriculture and Food Authority was rightfully constituted to renew its licence.

This come after West Kenya appealed in Kisumu’s Civil Appeal No. 89 and 90 of 2011 where an order was issued to the Kenya Sugar Board to hear and determine the its application for a licence.

In court documents, Butali disclosed that it had spent close to Sh15 billion in the project with 353,409 Kenyans directly relying on the mill, an investment West Kenya wanted dismantled.

Judge George Odunga in his ruling expressed concerns over what he termed as repeated and unhelpful litigation warning the miller from engaging in another court battle with Butali.

LITIGATION

 “The parties herein have persistently engaged in an unhelpful litigation geared towards championing protectionist interests in a manner reminiscence of the old imperialist tendencies to the detriment of the people who toil to ensure their industries thrive. They have turned the courts of this country into the legal drama theatres bordering on circuses to the detriment of the farmers’ interest. This course cannot be perpetuated by this court,” the judge wrote in the ruling that gave Butali its lifeline.

But Mr Rai has not stopped there, to date Polysack Limited in Busia County is yet to start operating since it was granted a licence in 2012 thanks to frustrations from Rai’s West Kenya Sugar.

The man, who first crossed swords with his family members when he edged them out of Raiply Woods business sparking a legal battle up to Supreme Court between him and his other family members led by his two brothers Mr Jasbir Rai and Iqbal Rai, now has an omnipresence in the entire government.

The case had seen one of the judges, Justice A.B Shah, resign under a cloud of claims that he had been compromised by the elder Rai, who now operates with son Tejveer Rai, the Managing Director of the Kakamega-based sugar miller.

VETTING PROCESS

During the hearing of Sharad Rao’ vetting process, Mr Rai and his lawyer Goswami were accused of bribing Justice Shah. It was discovered that the judge had been surreptitiously writing notes to help Rai’s case in a matter he was hearing.

State capture is neither a unique problem to Kenya nor did it run down the government in South Africa for the first time, Brazilian President Dilma Vana Rousseff, who was impeached, was accused of State capture by powerful corrupt network. In the US, business interest overlapped before the financial crisis with mortgage lenders running amok plunging the economy into a mess.

It remains to be seen how Mr Rai will coil back into business after suffering a smear sparked on his Kabras Suagr brand, which at some point was the only one in the market. It will also be interesting to see what happens to his tonners of sugar tucked in godowns across the country as industry experts say refining the sugar may not make business sense.

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